The GBP EUR exchange rate was higher after German inflation hit an all-time high for the second month in a row. The Bundesbank also said that the price rises would near 7% for this year. In the UK, Boris Johnson was again talking of tearing up the Northern Ireland protocol.
The GBP to EUR trades at 1.1700 but may find it hard to hold gains above that level after recent failures.
Bundesbank warns of soaring inflation in Germany this year
Inflation in Germany is set to near 7% this year, Bundesbank President Joachim Nagel said on Wednesday as he repeated a call for the European Central Bank (ECB) to raise its main interest rate in July.
“The Bundesbank is now expecting the inflation rate in Germany to reach close to 7% in 2022,” Nagel said.
He reaffirmed his view that the ECB should end its stimulus program in June and increase its policy rate the following month.
Germany’s inflation rate in April jumped to 7.4 percent amid soaring energy prices, according to the latest figures published by Destatis on Wednesday.
“The inflation rate reached an all-time high for the second month in a row since German reunification,” said Georg Thiel, president of Destatis.
A similarly high inflation rate was last seen in the country during 1981 when oil prices had sharply increased as a consequence of the war between Iraq and Iran.
Prices of heating oil in April were nearly double year-on-year, according to Destatis. Sharp increases were also recorded for motor fuels and natural gas, higher by 38.5 and 47.5 percent respectively.
The development of energy prices since the start of the Russia-Ukraine conflict had a “substantial impact on the inflation rate,” Destatis added.
Johnson talks of dropping protocol, BoE’s Saunders talks rates
Boris Johnson has reiterated a threat to override parts of the Northern Ireland Protocol, warning the European Union that the Good Friday Agreement is more important than the Brexit deal.
The British Prime Minister said on Wednesday that the protocol does not have cross-community support in Northern Ireland, adding “we need to sort it out”, despite warnings from European leaders not to touch it.
Meanwhile, Bank of England policymaker Michael Saunders has said the neutral rate of interest might be somewhere in the range of 1.25% to 2.5%, higher than the current 1.0% level set last week.
Replying to questions after a speech at the Resolution Foundation on Monday, he said financial markets were pricing a similar range for the Bank rate over the next five years.
“I’m inclined to think that a neutral interest rate, taking the signal from financial markets – I don’t want to endorse it too strongly – that is consistent with the idea that a neutral interest rate is somewhere in that range,” he said.
Saunders and two other members of the BoE Monetary Policy Committee voted to raise interest rates from 0.75% to 1.25% last week. However, a majority of six members backed a smaller rise to 1.0%.